International trade finance

Th global trading system is undergoing a period of transition. Shifting economic circumstances, major advances in technology and the emergence of new players on the global scene all underscore that we are on the cusp of big changes. Persistent imbalances, driven largely by macroeconomic factors, continue to be a cause of concern in some major economies. Even in such a climate of uncertainty, one thing is certain: that there is a great need to strengthen the global trading system by making it more equitable and relevant for those who trade in the twentyfist century with Uniform Customs and Practice. In retrospect we fid that in 2005, the value of world merchandise exports rose by 13% to 10.1 trillion and the value of world commercial services export by 11% to 2.4 trillion. Th volume and value of international trade is a testimony to make us believe that the world order has changed quite swiftly over the past ten years at a much faster pace than that of the previous 20 years. It is diffilt to contemplate what the world tradeeconomies will look like in 2010. One thing is certain, however: Change is inevitable. Bankers and trading communities operating in such a climate will have to face challenges that are immense. Technology has indeed opened up new markets, with geographic boundaries becoming nonexistent to the webenabled community. What we see today is the beginning of the reaction to this expansion as an outcome of globalisation and internationalisation, adding multicomplexities to the players in the international trade. In this spectrum, industry practitioners will solicit solace by resorting to basics and learning the lesson of the laser. How to understand rather than fid a solution from the ponderance? So we did, encouraged by these international interactive develop

International Trade Finance Second Edition A Pragmatic Approach Tarsem Bhogal · Arun Trivedi Finance and Capital Markets Series The Finance and Capital Markets series is designed to bring you high-quality, cutting-edge information on the latest issues and developments in the fi ­ nancial world These authoritative yet accessible books, written by experts in their field, provide clear, practical guidance not only for industry professionals, but also serve as a framework of current analysis for scholars and form a ­comprehensive reference resource for libraries More information about this series at http://www.palgrave.com/gp/series/13977 Tarsem Bhogal • Arun Trivedi International Trade Finance A Pragmatic Approach Second edition Tarsem Bhogal London, UK Arun Trivedi London, UK Finance and Capital Markets Series ISBN 978-3-030-24539-9    ISBN 978-3-030-24540-5 (eBook) https://doi.org/10.1007/978-3-030-24540-5 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2019 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar ­ ­methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover illustration: Thatree Thitivongvaroon / GettyImages Cover design by eStudio Calamar This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Preface The global trading system is undergoing a period of transition Shifting ­economic circumstances, major advances in technology and the emergence of new players on the global scene all underscore that we are on the cusp of big changes Persistent imbalances, driven largely by macro-economic factors, continue to be a cause of concern in some major economies Even in such a climate of uncertainty, one thing is certain: that there is a great need to strengthen the global trading system by making it more equitable and relevant for those who trade in the twenty-first century with Uniform Customs and Practice In retrospect we find that in 2005, the value of world merchandise exports rose by 13% to $10.1  trillion and the value of world commercial services export by 11% to $2.4 trillion The volume and value of international trade is a testimony to make us believe that the world order has changed quite swiftly over the past ten years at a much faster pace than that of the previous 20 years It is difficult to contemplate what the world trade/economies will look like in 2010 One thing is certain, however: Change is inevitable Bankers and trading communities operating in such a climate will have to face challenges that are immense Technology has indeed opened up new markets, with geographic boundaries becoming non-existent to the web-enabled community What we see today is the beginning of the reaction to this expansion as an outcome of globalisation and internationalisation, adding multi-complexities to the players in the international trade In this spectrum, industry practitioners will solicit solace by resorting to basics and learning the lesson of the laser How to understand rather than find a solution from the ponderance? So we did, encouraged by these international interactive developments v vi Preface Based on our learning experience and working as practitioners facilitating international trade, in our capacity as bankers, we have worked on the treatise in your hands: International Trade Finance: A Pragmatic Approach (2007) In fact, we have been motivated to write this book in view of the urge from the beginners as well as industry practitioners to understand and grasp the type and nature of various documents in use in international trade and mechanisms of settlement of payments thereof The book is organised into 25 chapters endeavouring to address key topics relating to the gamut of international trade, letter of credit mechanism, ­collections, trade customs and practice, and so on We not pretend that all technical concerns are answered but we are confident that we have gone much further than any other published material on the subject Dealing with complicated implementation issues in a forthright and comprehensive fashion and design, we have given a lucid account of provisions vis-à-vis trade customs and practice while protecting the interests of the parties involved in international trade We have striven to present and explain transaction flow through diagrams, easing the job of a learner enabling to understand and grasp the hardcore subject matter We sincerely believe that this book will be regarded as an essential tool for both beginners and practitioners in international trade We are hopeful that the readers will position this book within easy reach for navigating solutions to assorted trade-related issues and/or as a constant travel companion when in business across the world London, UK London, UK  Tarsem Bhogal Arun Trivedi Acknowledgements We are grateful to the following authorities for their permission to publish information in this book relating to their products and services As the systems and procedures of international trade change with improvements of information technology and other developments, we request the readers to visit their websites to obtain the latest information: Export Credit Guarantee Department—www.ecgd.gov.uk UK Export Finance—www.ukexportfinance.gov.uk International Chamber of Commerce (ICC) Paris—www.iccwbo.org Society for Worldwide International Financial Telecommunication— www.swift.com Disclaimer: The authors have made reasonable efforts to ensure the accuracy of the information given in this book at the time but assume no liability for any inadvertent error or omission that may appear The information may change from time to time and practical procedures may also differ from one bank to another; the authors not accept any liability for the consequences of error or omission Tarsem Bhogal Arun Trivedi vii Praise for International Trade Finance “This book is a welcome addition to the literature with details of both innovative concepts and professional practice This book will be highly useful to academics, practitioners and banking officials all over the world.” —Professor Thomas Muthucattu Paul, Professor of Economics and Finance, PNG University of Technology, Papua New Guinea “This topical book is essential reading suited to a wide range of readers interested in International Trade Finance An armchair read for consultants and practitioners, it features useful background material for short duration or capsule programmes run by trainers The extensive content qualifies this is as a good desk reference book for both bankers and shippers.” —Somya Mishra, Assistant Vice-President, Risk COO, Deutsche Bank London, UK “This handy tool provides a comprehensive foundation for understanding all aspects of International Trade Finance in a global context, covering the key principles, concepts, infrastructures, practices, issues, and current developments Definitely a must read for professionals in banking, commerce, trade and transport industry who want to gain a closer understanding of International Trade Finance pragmatically.” —Ankita Sethi, freelance Socially Responsible Investment Consultant, analyst and writer “I appreciate the endeavours of the authors in bringing this informative, educational and self-training literature on this subject The topics covered in the second edition will be appreciated by beginners and practitioners undertaking the demanding and complex international trade business.” —B.C. Bassi, Former Non-workmen Director on the Board of State Bank of India (formerly known as State Bank of Patiala) Contents 1 International Trade and Inherent Risks  1 Background of International Trade   1 Exporters’ Risks   2 Importers’ Risks   2 2 Services Offered by Commercial Banks  5 Finance for Exports   7 3 Methods of Trade  9 Cash on Delivery   9 Advance Payment  10 Open Account  10 Collections  10 Letters of Credit   11 Methods of Payment/Settlement of Account   11 Cheque  11 Bank Draft  11 Mail Transfer (MT)  12 SWIFT  12 CHAPS  12 CHIPS  12 Direct Debit  12 EFT  13 Fedwire  13 xi 340 Glossary Domicile  A place of permanent residence; the place at which a bill of exchange is made payable Drawee  The person or company on whom a bill of exchange or cheque is drawn When the person has accepted a bill he is known as the acceptor Drawer  The person who writes out and signs a cheque or bill of exchange EBA (European Banking Association)  A discussion forum for payments practitioners, the Euro Banking Association plays a major role in the financial industry as a developer of European payment infrastructures The initiation and coordination of a cost effective and efficient euro clearing system are core activities of the association and have led to the creation of Europe’s leading private large-value clearing system EURO 1, the low-value payment system and STEP 1, and the first pan-­ European automated clearing house, STEP EBPP (Electronic Bill Presentment and Payment)  The process by which companies bill customers and receive payments electronically over the internet There are two types of presentments model: the direct model, in which a biller delivers the bill to customers via its own website or via a third-party’s site; and the consolidator model, in which bills multiple billers are delivered to a single website, to be presented in aggregate to the consumer for viewing and payment ECB (European Central Bank)  The ECB is the central bank for Europe’s single currency, the Euro The ECB’s main task is to maintain the Euro’s purchasing power and thus price stability in the Euro area The ECB was established as the core of the Euro-system and ESCB (European System of Central Banks) The ECB and the national central banks together perform the task they have been entrusted with The ECB has legal personality under public international law EDI (Electronic Date Interchange)  The electronic exchange between commercial entities (in some cases also between public administrations), in a standard format, of data relating to a number of message categories, such as orders, invoices, customs documents, remittance advices and payments EDI messages are sent through public data transmission networks or banking system channels Any movement of funds initiated by EDI is reflected in payment instructions flowing through the banking system EDIFACT, a United Nations body, has established standards for electronic data interchange EDIFACT (Electronic Data Interchange for Administration Commerce and Transport)  Along with ANSI X12, EDIFACT was one of the first information standards created for e-business transactions EFT (Electronic Fund Transfer)  A service which routes payments to the appropriate bank or building society EFTPOS (Electronic Fund Transfer at Point of Sale)  The term refers to the use of payment cards at a retail location The payment information is captured either by paper vouchers or by electronic terminals, which in some cases are designed also to ­transmit the information Where this is so, the arrangement may be referred to as “electronic fund transfer at the point of sale”  Glossary  Eligible Liabilities  341 The GB Pound deposits of the banking system as a whole, excluding deposits having an original maturity or more than two years, and any GB Pound resources gained by switching foreign currencies into GB Pound Inter-­ bank transactions and GB Pound certificates of deposit (both held and issued) are taken into the calculation of individual banks’ liabilities on a net basis, irrespective of the term Endorsement in Blank  An endorsement in blank consists of the name only of the payee or endorsee of a bill of exchange, written on the back of the bill Such an endorsement specifies no endorsee, and the bill becomes payable to bearer Euro-Currency  Currency held by non-residents and placed on deposit with banks outside the country of the currency Major Euro-markets exist in Germany, Switzerland, France and the UK, and, from time to time, there are active dealings in Netherlands and Belgium and even Japan The Euro element is of less importance now that deposit markets have been established in the Far East (the Asian currency market) and in the Western hemisphere Euro-Dollars  Dollars belonging to non-residents of the US, which are invested in the money markets in Europe, particularly in London Side by side with the Euro-­ dollar market, there exist the Asian and the Western hemisphere markets Euro-­ dollar settlements are made over the banking accounts in the US and form an integral part of the US money supply Exchange Contract  Verbal or written agreement between two parties to deliver one currency in exchange for another for a specific value date, or sometimes a specific period, as in the case of an option contract Exotic Currencies  Currencies in which there is no active exchange market Most of the currencies of the underdeveloped world would fall within this category FATF (Financial Action Task Force)  It is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing It is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas Fed Wire  Federal Wire is a high-speed electronic communication network linking the Federal Reserve Board of Governors, the 12 Federal Reserve Banks and 24 branches, the US Treasury Department and other federal agencies Finance Bill  A bill drawn by a firm or company for the purpose of arranging a short-­ term loan The bill is drawn by arrangement on another firm or on a bank or accepting house No sale of goods is involved When the bill is accepted, it is discounted Firm Quote (Quotation)  When a foreign exchange dealer gives a firm buying or selling rate, or both, for immediate response or with a definite time limit Fixed Exchange Rate  Official rate set by monetary authorities for one or more currencies In most instances, even fixed exchange rates are allowed to fluctuate between definite upper and lower intervention points 342 Glossary Flexible Exchange Rates  Exchange rates with a fixed parity against one or more currencies but with frequent up or down valuations Floating Exchange Rate  When the value of a currency is decided by supply and demand only Floating Pound  The GB Pound left to find its own level on the Foreign Exchange through the operation of the laws of supply and demand Fluctuations  Up and down movements of an exchange rate in response to supply and demand Foreign Bill  A bill of exchange drawn abroad and payable in this country; or drawn in this country and payable abroad Foreign Exchange  Conversion of one currency into another Foreign Exchange Market  Worldwide network which connects the various national exchange markets by telephone and telex, either direct or via the brokers, to transact foreign exchange business Forward Book  Various net exposures for forward maturities which a bank has incurred by deliberate policies or as a result of dealing activities Forward Contract  Exchange agreement between two parties to deliver one currency in exchange for another at a forward or future date Forward Exchange  Buying or selling currencies for delivery later than spot Also called “future” Forward Margins  Discounts or premiums between the spot rate and the forward rates for a currency Forward Maturities  Business days for which deals can be transacted later than the spot date Forward Purchase  Engagement to buy a currency in exchange for another at a future date Forward Rate  The rate at which foreign currency can be bought or sold for delivery at a future time Forward Rates  Discounts or premiums between the spot rate and the forward rates for a currency Forward Sale  Agreement to deliver a currency in exchange for another on a future date Forward/Forward  Simultaneously buying and selling the same currency for different maturity dates in the forward market This also describes a dealer’s forward book when he has long and short positions for different maturities, for example, long of Euro three months and short of Euro in the six months maturity Forwarding Agent’s B/L  A certificate of shipment issued by a shipping company’s agent stating that the named consignment has been forwarded Freehold  An estate in land, which is properly described as an estate in free simple absolute possession, signifying the highest type of land ownership, which anyone can possess Freight Paid/Prepaid  It is a clause when the freight is paid to the carrier prior to the transportation of the consignment  Glossary  Freight Prepayable/To Be Prepaid  343 Freight to be paid before shipment of the cargo Securities of the highest class (e.g government stocks) which are readily realizable Good Root of Title  A document, which deals with the whole legal and equitable interest in land, describes the property in detail and shows no adverse factor influencing the title It is the starting point of the chain of title when proving title to land Green Clause  This clause is written on a letter of credit and is distinct to Red Clause, primarily covers the degree to which each one ties up the applicant’s funds and exposes him to a foreign exchange risk The merchandise is taken as collateral security against the advance of funds allowed by this clause The advance funds may be given against warehouse receipts Such clauses are not common these days and are of academic interest Ground Rent  The rent paid to a freeholder who has granted a lease on his land and/or buildings Hedge Against Inflation  An investment in land or shares, which are expected to appreciate in value in times of inflation, thus protecting the investor against loss due to the fall in the value of money Hedging  Act of buying or selling the currency equivalent of a foreign asset or liability in order to protect its value against depreciation (appreciation) or devaluation (revaluation) Holding Deed  The deed, which transferred the ownership of land to the person who is now holding it House Air Waybill  A document issued by a consolidator for instruction to the break bulk agent House Bill of Lading  A Certificate of Shipment of a specified consignment usually issued by a Freight Forwarder in association with a group age or consolidated international consignment Hull Loading  It is where the vessel is loaded away from the port or a small ship goes into the other big ship Inconvertible Currency  Currency, which cannot be exchanged for other currencies, either because this is forbidden by the foreign exchange regulations or because there are no buyers who wish to acquire the currency Indication (Indication Rate)  When a dealer states “for indication” or “indication rate”, this means that he does not want to transact business at the given rate or rates The use of this expression can lead to confusion and it is preferable to substitute the less ambiguous term “for information only” Indirect Quotation  Foreign exchange rate, which values the local or national currency in terms of the foreign currency For example, in London foreign exchange rates show the value of £1 in other currency terms Inflation  The result of the excessive issue of paper money, so that too much money is chasing too few goods, with the result that the value of the money in terms of goods steadily falls (i.e prices rise) Inherent Vice  Deterioration of perishable goods by the passage of time or period Gilt-Edged  344 Glossary Inland Bill  A bill of exchange both drawn and payable within a country Switching into another currency by buying spot and selling forward, and investing the proceeds in order to obtain a higher interest yield Interest arbitrage can be inward, that is, from foreign currency into the local one, or outward, that is, from the local currency to the foreign one Sometimes better results can be obtained by not selling the forward interest amount, but in that case, if the exchange rate moved against the arbitrageur, the profit on the transaction might be less and even turn into a loss Interest Parity  One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins For instance, if the operative interest rate in the US is 5% and in the UK 6%, a forward premium of 1% for US Dollars against GB Pounds would bring about interest parity Intervention  When central banks operate in the exchange markets to stabilize the rates and sometimes to influence the external value of a currency Intrinsic Value  Genuine or real value When used of a coin it means that the metal in the coin is worth the face value of the coin Investment  Using money to buy something which, it is hoped, will bring in some return and will not lose its value Jettision  Means the throwing overboard of cargo or ship’s gear to save the ship Jobber  A dealer on the Stock Exchange who carries on business with the public and with other jobbers through the medium of stockbrokers L.A.S.H. B/L (Lighter Abroad Ship)  A smaller ship that goes into mother ship Leads and Lags  Process of accelerating or delaying foreign exchange cover when a currency adjustment seems imminent Leasehold  Granting of the use of land by the freeholder to a lesser for a term of years Legal Tender  The authorised notes and coin which may be lawfully offered in payment of a debt in a country Lien  Lien is a legal right to obtain goods belonging to someone else until the charges on them have been paid, or until some pecuniary claim against the owner has been satisfied Limited Liability  The limitation of the shareholders of a company of their liability for the debts of the company to the nominal amount of the shares they hold or to the amount they have guaranteed Liner B/L  A Bill of Lading issued by a shipping company operating passenger ships Long Bill  A long bill is a bill of exchange having a usance of three months or more Long Position (or just Long)  Incurred when a dealer purchases a currency in excess of his immediate requirements Obviously a long position in one currency is compensated by a short position in another, even if the other currency is the national one Mail Transfer (MT)  In this case, the buyer’s bank sends instructions by airmail to a correspondent bank, asking it to credit the exporter or his bank with GB Pound or foreign currency Bank charges for remitting funds by MT are to be met by either the buyer or exporter and depend on what the parties have agreed This method is slower than other methods of transfer of funds between banks in two different countries Interest Arbitrage   Glossary  Managed Float  345 When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction Margin (Spread)  Difference between the buying and selling rates, but also used to indicate the discounts or premiums between spot and forward Maritime Lien  Shipping company’s lien over the cargo for freight not paid and the captain and the crew also have lien over the cargo for not being paid their salary by the shipping company Market-Maker  The bank which makes buying and selling quotations in one or more currencies, either for spot and/or forward, to most comers Master Air Waybill  An air waybill covering a consolidated shipment showing the consolidator as the shipper Master of the Vessel  Captain of a merchant vessel Mate Receipt  Is an acknowledgement of the goods issued by the wharfinger or master of the ship when the goods are delivered on the wharf before the arrival of the ship named to carry the goods Maturity Date  Due date of an exchange contract, that is, the day that settlement between the contracting parties will have to be effected Mortgage  The conveyance of a legal or equitable interest in real or personal property as security for a debt or for the discharge of an obligation Near Money  A term sometimes applied to bills, cheques, promissory notes, postal and money orders Negotiable Bill of Lading  Original copy of B/L duly signed by the ship owner or his authorised agent which gives the transferee a good title to goods New Jason Clause  Means the ship owners will not be responsible for any accidental damage to the goods, before or after the shipment but in their custody Ocean B/L  When the buyer names a particular ocean-going vessel to transport the consignment Offer for Sale  An invitation to the public to buy shares of a new issue from an Issuing House, which has bought the issue from the company concerned Offshore Funds  A name given to mutual investment funds registered abroad in countries which offer tax advantages On-Board B/L  A Bill of Lading indicating that the goods named therein have been received on board of the ship On-Deck Shipment  Received on the deck for shipment It is similar to “On Board B/L” Open Day  Also known as Banking day, Business day, Clear day and Market day A day on which foreign exchange contracts can be settled; e.g a foreign exchange contract covering the sale of US dollars against GB Pounds can be finalised only on a day when both New York and London are open for normal banking business (of course, other cities in the US and UK are suitable for payment, but only if they are acceptable to both parties to a transaction) 346 Glossary Open Market Operations  The purchase or sale of securities in the Stock Exchange or Money Market by the central bank for the purpose of expanding or contracting the volume of credit Option Forward Rate  The rate at which foreign currency can be bought or sold for delivery between two future dates at the option of the buyer or seller The option is as to the precise day of completion Over-Valuation  Describes the exchange rate of a currency, which is in excess of its purchasing power parity This means that the country’s goods will be uncompetitive in the export markets Overnight Limit  Net long or short position in one or more currencies that a dealer can carry over into the next dealing day Package Deal  When a number of exchange and/or deposit orders have to be fulfilled simultaneously Palletised Cargo  Cargo of heavy weight placed on wooden frame and so on to facilitate lifting Paper Money  Documents representing money, such as banknotes, promissory notes, bills of exchange or postal orders (The last three of these are sometimes referred to as “quasi-money”) PAR  The nominal value of securities, or the exact amount, which has been paid for them Paramount Clause  Bills of Lading issued in the UK bear the “Paramount Clause” which means that the carriage of goods is subject to the terms and conditions of the “Carriage of Goods Act of 1924” Partial Shipment  Shipment of the cargo in part of the entire or complete consignment for shipment PIP  The fifth place after the decimal point, for example $/£1.72105 The last digit represents five pips Pledge  A delivery of goods or the documents of title to goods, by a debtor to his creditors as security for a debt, or for any other obligation It is understood that the subject of the pledge will be returned to the pledgor when the debt has been paid or the obligation fulfilled Point  The fourth place after the decimal point is called a “point”, for example $/ Euro1.4012 The last digit (2) represents two points Port Bill of Lading  It is a Bill of Lading, which is signed by an authorised person after the receipt of goods/shipment by the person at the port of shipment Port Congestion Surcharge  Extra charges for causing congestion at the port by over staying in the port Premium  A currency is at a premium, especially in the forward market, when fewer units can be bought for a forward maturity than on the spot Prime Bank Bill  A bill of exchange drawn on and accepted by a first-class bank Qualitative Control  Directives from the Bank of England to the lending banks and financial institutions as to classes of customers who may be allowed to borrow  Glossary  Quantitative Control  347 Directives from the Bank of England to the lending banks and financial institutions as to the total amount of money which they may lend Quarantine  Isolation imposed on a passenger while travelling Quasi Negotiable B/L  It is a Bill of Lading that if the transferor has a defective title the transferee does not get good title to the B/L Railway Receipt  A Railway Receipt is document issued by Railway authorities for transportation of goods by railway Red Clause  It is a clause added to a letter of credit, which authorises the advising/confirming bank to advance a certain specified percentage of the credit amount to the beneficiary before the beneficiary is in a position to present documents Received For Shipment B/L  A document issued by a shipping company acknowledging the receipt of goods for shipment Reserve Assets  These assets, to be held by banks and other financial institutions, are those which the Bank of England is ready to convert into cash, either directly or through the discount market They comprise Treasury Bills, (Repos), cash held with Bank of England, investments in Gilt Edged Securities and so on Respondentia Bond  An instrument by which the owner of the ship hypothecates the cargo as security for repayment of money borrowed at a foreign port Restraint of Princes  Action by a Government or King for arresting the ship or the cargo and so on Restrictive Endorsement  One which prohibits the further negotiation of a bill or cheque Retail Banking  The traditional course of business between a banker and his domestic customers, as opposed to “wholesale” banking Revaluation  When the official value of a currency is updated by a deliberate decision of the monetary authorities Rights Issue  The offer by a company of new shares direct to its existing members The price is usually set below the market price of the existing shares in order to make the offer attractive The rights to subscribe, therefore, have themselves a market value, and can be sold Rollover  Prolongation of a maturing contract by swapping it onto a forward date Sailing Vessel B/L  Bill issued by the owner of the “sailing vessel” (S.V.) Scrip  The document or provisional certificate which is given to a person who has agreed to take up bonds in connection with a government loan and has paid the first instalment Scrip is principally associated with the issue of bonds or debentures Scrip Issue  A capitalization of reserves by issuing fully paid-up shares free to present shareholders in proportion to their current holding Seller’s Option  Forward contract, which allows the seller to deliver the foreign currency on any date within the option period Selling Rate  Rate at which a market maker will sell a foreign currency for a suitable maturity date 348 Glossary Shipper  Name of the exporter/consignor A short bill is one which has only a few days to run to maturity, irrespective of the original tenor of the bill or a bill of exchange payable as soon as sighted or seen by the drawee Short Forward Date and Rate  The term “short forward” can refer to periods of up to two months, although it tends to be used more and more for maturities of less than one month Dealers may use the term “Shorts” as well Short Position  It is position of a foreign exchange dealer when a dealer is short outright of a foreign currency Sling Loss  Damage to goods by use of slings (Hooks) Sous-Palan Clause  The carrier reserves the right to unload the cargo to lighten the ship’s cargo This situation may arise out of port congestion Special Deposit  An instrument of monetary policy, designed to restrict credit The Bank of England may call upon all banks and financial institutions to deposit a percentage, usually 1%, of their total deposits with the Bank of England This restricts the ability of the lending institutions to extend credit Speculation  The purchase or sale of shares on an estimate of whether the share value will rise or fall, with the intention of making a quick profit, or avoiding a loss Speculator and Speculation  Individual, an act of buying and selling a currency before the currency has to be paid for or delivered in the hope that a favourable exchange rate adjustment will take place Spot  Generally the spot date falls two business days after the transaction date, though in some markets spot transactions may be executed for value next day Spot Deal (Transaction)  Foreign currency purchase or sale effected for spot value Spot Rate  The normal rate of exchange quoted in the foreign exchange markets, that is, the rate for transactions in which the funds are to be paid over in each centre two working days later Spot Rate (Exchange Rate)  The spot rate is also the exchange rate of a currency and is the one against which appreciations and depreciations (devaluations and revaluations) will be calculated Spread  Difference between the buying and selling rates, but also used to indicate the discounts or premiums between spot and forward Square  Purchases and sales are in balance and thus the dealer has no position Stag  A Stock Exchange expression for a person who applies for shares in any new company with the sole object of selling as soon as a premium is obtainable and never intending to hold or even fully subscribe for the shares Stale B/L  Where a B/L is dated after the bill of exchange or received in the importer’s country after the goods have arrived Straight B/L  It is an American term for a bill of lading in which it is stated that the goods are consigned to a specified person Steam Ship B/L  A Bill of Lading issued by Steam Ship owner (S.S.) for the cargo Steamer Arrival  Date of the arrival of the steam ship Short Bill   Glossary  Stockbroker  349 One who purchases or sells stocks or shares for his clients on the Stock Exchange Stop-Loss Order  Order given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss “Realize Profit Orders” are less common Swap  Transaction involving the simultaneous buying and selling of a currency for different maturities Swap Margin  Discounts or premiums between the spot rate and the forward rates for a currency Telegraphic/Swift Transfer  This is identical to Mail Transfer except that the instructions are conveyed by telex or cable or electronically Transfers can also be made via the S.W.I.F.T (Society for Worldwide Interbank Financial Telecommunications) network Tenant Right  A right of the tenant of property, whether expressly stated or implied, such as a right to remove fixtures at the end of the tenancy, or to receive an allowance for seeds or fertilizer put on the land Tenor  The term or meaning applied to a bill of exchange or financial instrument when it is payable on sight or a given number of days/months after the date of the instrument Term Bill  A bill of exchange which is payable at the end of a period, as opposed to a bill payable at sight or on demand Thin Market  When there is little activity in the market and even small orders will affect the rate structure Third Party B/L  A B/L issued not by the ship owner but some other shipping company Through Bill of Lading  It is a bill of lading, which provides (or ought to provide) for continuous responsibility of several railway and shipping undertakings from one place to another Token Money  Coins where the value of the metal in them is less than the value attached to them by law, such as the cupro-nickel and bronze coins of the UK Trade Bill  A bill of exchange drawn and accepted by commercial firms Tramp Shipping  Freight or cargo vessel running on irregular line Trans-Shipment  Transfer of cargo from one ship to another prior to reaching the destination Transaction Date  Day on which a foreign exchange transaction is entered into Transaction Loss (or Profit)  Real or opportunity loss or profit on a foreign exchange transaction covering the movement of goods or services or even to undo another foreign exchange transaction Translation Loss (or Profit)  Estimated loss or profit resulting from the revaluation of foreign assets and liabilities for balance sheet purposes Treasury Bill  Bills issued by the treasury in return for sums of money lent to the government by bankers, brokers and so on They form part of the floating debt of the country 350 Glossary Truck Way Bill  by a truck A document issued by a Road Transporter for transportation of goods Two-Way Quotation  When a dealer quotes both buying and selling rates for foreign exchange transactions Unclean B/L  When the Bill of Lading indicates the packing of goods is defective or broken Undated Stock  Gilt-edged security issued by the government on a perpetual basis and does not have a date by which it will be redeemed Under-Valuation  An exchange rate is under-valued when it is below its purchasing power parity The consequence of under-valuation is that goods produced in the under-valued country will be too cheap in the export markets Unitised Cargo  Items such as motor vehicles, tractors and other machinery, which are delivered and accepted by the shipping company as units Usance Bill of Exchange  It is a period of time between the date a bill of exchange is presented and the date it is paid In the strict sense, the term means the time allowed by customs for the period of a bill of exchange in trade between two different countries A bill of exchange drawn in one country and payable in another at a term which is governed by the custom or usage of such transactions Value Date  Maturity date of a spot or forward contract Value Today  Transactions executed for same-day settlement; sometimes also referred to as “cash transactions” Wharfage  Charges for storing goods at the wharf Wholesale Banking  Borrowing or lending, usually in large sums, by big banks amongst themselves through the medium of the inter-bank market; dealing with other financial institutions, as opposed to retail banking which consists of the traditional course of business between a bank and its customer Yankee Bonds  Dollar denominated bonds issued in the US by foreign banks and corporations These bonds pay semi-annual interest, unlike Eurobonds, which pay annual interest, and are registered with Securities and Exchange Commission Yield Curve  Comparison of the market return, or yield, of a security and its maturity This usually is plotted on a graph showing the comparative yields of similar investments, such as bonds Z-Bond  Long-term, deferred interest Collateralised Mortgage Obligation (CMO) bond that pays no interest until all prior bonds in a CMO bond offering have been retired Z-Bond is similar to Zero Coupon bond Index A Acceptance letter of credit, 96–97 The acceptor, 30, 37, 38, 132, 338, 340 Accommodation bill, 29, 45 A/D, 29 Advance payment, 10, 68 Advising bank, 49–51, 62–67, 71, 73–75, 101, 102, 108, 109, 112, 144, 166 Air waybill, 137, 171, 345 Anticipatory drawing red clause, 68–69 Applicant, 48, 49, 51, 53, 59–62, 64, 66, 67, 69–71, 73, 78–80, 82, 83, 88, 89, 94, 106, 131, 133, 144, 145, 165–167, 172, 197, 283, 325–329, 343 Arbitration clause, 196 A/S, 29 Assurance of payment, 64 B Back-to-back letter of credit, 74–77, 79–84 Bank draft, 10 Bill of exchange, 2, 6, 10, 11, 25–31, 33–36, 38, 42, 49, 50, 60, 62, 87, 88, 95–97, 99, 100, 102, 111, 115, 132–134, 141, 143, 157, 165, 168, 176, 243, 328, 333, 334, 337, 339–342, 344, 346, 348–350 Bill of lading, 29, 30, 54, 105, 134–137, 140, 141, 168–171, 177, 308, 329, 335, 339, 348, 349 Blank endorsement, 33, 34 Bond(s), 54, 55, 89, 90, 104, 136, 179, 186–196, 198–202, 236–238, 258, 281, 347, 350 C Capital goods sale, 153 Carriage Paid To (CPT), 121 The carrier, 29, 52, 54, 55, 120–122, 127, 136, 137, 140, 141, 170–172, 176, 342 Cash flow, 53, 147–150, 236, 277, 282, 284, 285 © The Author(s) 2019 T Bhogal, A Trivedi, International Trade Finance, Finance and Capital Markets Series, https://doi.org/10.1007/978-3-030-24540-5 351 352 Index Cash margin, 80, 82, 83 Certificate of inspection, 138 of origin, 138, 169 Charter party bill of lading, 136 Cheque, 6, 10, 11, 13, 33, 100, 143, 337, 340, 347 Clean bill of lading, 136 Clean letter of credit, 59 Clearing House Automated Payment System (CHAPS), 12, 333, 336 Clearing House Inter-bank Payment System (CHIPS), 12, 337 Collection of bills, vi, 38, 39 Collections, 7, 40, 44 Combined transport document, 141, 172 Commercial risk, 154 Competitive terms, 285 Conditional endorsement, 36 Confidence in a currency, 19 Confirming bank(s), 50–52, 62–65, 67, 69, 79, 95, 96, 101–103, 105–106, 109, 112–113, 144, 164–167, 243, 347 Contracts and regulations, 56 Cost, 44, 46, 76, 84, 100, 117, 120, 124, 125, 127, 128, 138, 143, 146, 149, 150, 153, 155, 156, 175, 195, 235, 251, 253, 256, 257, 263, 272, 273, 275–279, 283, 309, 314, 340 and freight, 76 Credit line, 53, 74, 76, 85, 197 Currency risk, 251, 253 D/P, 6, 28–30, 39, 243, 245, 338 The drawee, 10, 26–28, 30–32, 38, 44, 45, 97–100, 132, 133, 143, 328, 333, 338, 348 The drawer, 26, 27, 29–31, 100, 132, 143, 167, 333 E The endorsee, 34, 35 The endorser, 27 eUCP, 159–164 Exchange control, 2, 11, 52, 85 Exchange control regulations, 2, 52, 85 Exchange risks, Expensive, 85, 148, 150, 152, 183, 243, 276, 277, 283, 287, 294 Export Credit Guarantee Department (ECGD), 7, 55, 233–236 F Factoring, 147–152, 154, 276 Financial load variations, 107 Fixed rate export finance, 152 Foreign currencies, 6, 20–21, 335, 338, 341 transactions, 16 Foreign exchange market, 6, 16–19, 348 Forfaiting, 152–154, 157 Forward exchange contract, 6, 19, 21 rates, 17 G D Deferred payment letter of credit, 87, 88, 110, 155 Discrepancies in documents, 144 Documentary bill of exchange, 29 letter of credit, 59, 85, 133, 134, 165, 175 General acceptance, 30, 32 Guarantee, 6, 11, 47, 50, 55, 83, 88, 89, 147, 152, 153, 155, 179–189, 192, 195–197, 236–239, 241–245, 247, 248, 251, 253, 257, 258, 262–264, 276, 307 as security, 182–183  Index  353 H N The holder, 25, 26, 30, 31, 37, 51, 100, 170, 335 Negotiation, 36, 50, 55, 61, 62, 64, 68, 69, 79, 81, 82, 100–103, 113–116, 143–144, 197, 299–300, 323, 327, 347 of documents, 55 of documents under reserve, 55 is with recourse, 114, 115 Nominated bank, 50, 51, 163, 164 Non-payment, 2, 6, 9, 30, 38, 100, 106, 143, 145, 234, 243, 244, 263 I Incoterms, 57, 117, 119–130 Insurance and freight, 76 The insurer, 177, 269, 270, 274 Invoice, 20, 29, 54, 74, 120–130, 133, 134, 138, 139, 147–152, 155, 168–169, 275–277, 285, 324, 326, 339 discounting, 147, 151, 152, 276 Irrevocable letter of credit, 11, 62–64 Issuing bank, 11, 48–52, 55, 59, 61–65, 67–69, 71, 73, 75, 77, 78, 80–82, 89, 90, 94–103, 108–109, 111–116, 131, 143–145, 164–167, 169, 190, 194, 241–243, 328 L Language, 47, 53, 151 Legal system, 2, 313 Letter of guarantee, 155 Letters of credit, 59–61, 81, 83, 85, 88, 107, 152, 153, 155, 160, 243, 328 O Open account, 10, 53, 244, 279 Option forward contract, 22, 23 Other documents, 6, 29, 55, 59, 71, 138, 168–170, 172, 173, 177, 329 P Parties to a bill of exchange, 27 The payee, 27, 31–33, 36, 100, 132, 133, 143, 341 Payment L/C, 110 Political risk, 11, 153, 154, 233, 265 Presentation of a dishonoured bill, 38 Pricing, 80 Prime letter of credit, 76–84 Pro-forma invoice, 134, 168, 329 Protest, 38 Q M Mail transfer, 10 Marine Insurance, 177, 269–274 Methods of payment settlement, 95 of trade, Money laundering and terrorist activities, Multimodal transport document, 121 Qualified acceptance, 32 R Red clause, 66–69 Red clause letter of credit, 66 Red clause payment at maturity, 69 Reimbursing bank, 50 Responsibilities, 48–51, 120, 165, 166, 180, 334, 337 354 Index Restrictive endorsement, 35 Revocable letter of credit, 61 Revolving letter of credit, 65, 66 Road consignment notes, 139 Specific guarantee, 182 Stale bill of lading, 136 Standby letter of credit, 88–91, 190 T S Safeguards, 83 Sale contract, 29, 30, 47, 56–57, 118, 120, 125, 126, 134, 159, 166, 175, 271 Secondary markets, 153–154 Sight bill of exchange, 28, 29, 96, 102 Sight negotiation letter of credit, 113 Silent confirmation, 65 Special endorsement, 34 Technical details, 80 Transferable letter of credit, 69, 73, 167 Transfer risk, 156 Types of bills of lading, 177 U Usance bill of exchange, 28, 29, 31, 96, 97, 102 Usance negotiation, 114, 115